The Future of the Future: Gerd Leonhard looks ahead

16 August 2010

by Gerd Leonhard

The main shift is going to be away from the downloading of content and owning of CDs and more towards music in the cloud. That is going to happen with most media, starting first with music and then going into films and books. This is not just a music business issue.

We are moving away from the copy to access. This is a very good model for the artist. In the past, most of the money was spent on the physical product – so the reproduction, packaging, shipping and retail store.

The artist basically got nothing in most cases. Skipping that whole process now means that the brand of the musician becomes the most important thing. This is very good news for the artist, the producer and the creator but less so for the industry as it’s much easier to sell a copy than it is to sell access.

The idea that the artist just gets, say, 10% of the sold product is now out the window. Now the artist will give his agent or service agency some kind of fee – say 25% just as Nettwerk Records and other companies are already doing.

The issue is to get attention and clicks from consumers. If that attention is converted into a revenue share based on advertising, a subscription fee or an upselling process, then as soon as you have attention, you participate.

We are still in the old system of counting on revenue per use. That won’t work in the future. The bigger your brand, the bigger the attention you will get and the more clicks you get, the more money you’ll make.

I believe that consumers will ask for the access models to be free initially but then after they use it for a while they’ll be quite happy to pay so they can remove the ads or increase the quality of the stream for example.

Music online will feel like free. There is plenty of money to be made from ads, but it’s just not there yet. It’s coming, though. We have seen that advertising just doesn’t work on the Internet. It’s so easy to click away the ads or avoid them altogether. Advertising was essentially useless until now as today we are starting to see social advertising, such as on Facebook. Plus we have mobile advertising. Finally advertising is becoming more useful. The brands are no longer looking to spend 1% of their budget on social or mobile; they’ll be spending 10% or more.

There is a total disconnect between the way a new business can be grown and how a lot of rightsholders perceive how the business will be paid for by Google or ISPs, for example. That’s a very bad approach because it makes it impossible to legally grow a new model. You will be much more successful – like YouTube and Last.fm – if you don’t have the right licence and you just do it. That’s a real irony.

I don’t think we’ll be able to support new services without a compulsory licence. We need a compulsory licence for music use on the Internet so that companies like Spotify, MOG and we7 can use a licence rather than just bang their heads against a wall like they have in Germany and the US.

A cloud-based model has to win out in the end, as the costs are so much lower, the sharing is so much easier. You can put all sorts of ads into cloudbased systems because you always know what the user is doing. There are lots of great benefits there. But the industry hates the cloud-based model as they lose control over distribution.